How to Control Federal Spending III. Reform Medicaid!

Posted on July 15, 2014 by jackheidel

One of the many controversies involving the Affordable Care Act concerns the expansion of Medicaid to cover low income people up to 138% of the federal poverty level. As Robert Samuelson reported in the Washington Post a few days ago, “The Real Medicaid Problem,” 24 states have refused to expand Medicaid coverage even though the federal government will pay 100% of all additional costs until 2017.
As Mr. Samuelson points out, the underlying issue is a matter of cost:

The basic Medicaid program is funded with a fixed percentage of each state’s costs paid by the federal government. This means that the more a state spends, the more is contributed by the federal government. From 1989 to 2013, the share of state budgets devoted to Medicaid has risen from 9% to 19%. This upward trend is clearly unsustainable.
In Medicaid, children and adults up to age 65 represent three-fourths of beneficiaries, but only one-third of costs. The quarter of beneficiaries who are aged or disabled are responsible for two-thirds of costs.
More than 60% of nursing home residents are on Medicaid.
There is no assurance that the federal share of the expanded coverage will continue at the announced rate of 90% after 2017 because the federal government is in much worse financial shape than are most states.

An interesting Op Ed appeared recently in the Wall Street Journal, “The Smarter Way to Provide Health Care for the Poor,” written by Mike Pence, the Governor of Indiana. In 2008 Indiana set up the Healthy Indiana Plan to better serve low income Indianans. It now provides Health-Savings Accounts to 40,000 low income citizens, with very good results. Indiana is applying for a waiver to the ACA to use Medicaid expansion funds to provide HIP to all low income families up to 138% of the poverty level ($33,000 for a family of four).
Clearly, individual states, when offered the opportunity, are quite capable of coming up with innovative solutions for difficult problems.
A good way to resolve the problem of state resistance to Medicaid expansion is to fundamentally change Medicaid into a block grant program whereby the federal government contributes a specific amount of money to each state each year. Then the states design their own programs to meet their own needs. Block grant funding for Medicaid is a common sense approach to address one aspect of our huge fiscal problem in an intelligent way!

Now Is the Time to Solve Our Illegal Immigration Problem!

Posted on July 13, 2014 by jackheidel

The sight of thousands of children from Central America sitting in camps at the U.S. border should knock some sense into those members of Congress who are dragging their feet on comprehensive immigration reform. Overall, illegal border crossings are at their lowest level in many years (see chart below). Now is the time to get things straightened out before the illegal traffic starts building up again.
When the New York Times, “The Border Crisis,” and the Wall Street Journal, “A Better Border Solution,” agree on an issue, I tend to agree with them. Both newspapers say that the current crisis is the result of illegal immigrants in the U.S. trying to rescue their children from deplorable conditions back home. If they had legal status they would go home themselves and bring their children back to the U.S. but they can’t risk doing this without a visa.
As I pointed out in a recent blog, “Immigration Reform Will Benefit Nebraska,” it shouldn’t be that hard to achieve a comprehensive solution as follows:

All businesses would compile a list of their current employees who are illegal. Everyone on this list, without a criminal record, would receive a guest worker visa as of a certain date. Visas would be transferable from one employer to another.
Companies would be authorized to hire additional foreign workers in their home countries who would then receive a guest worker visa to enter the U.S.
Once the system was set up and operational, all businesses would be required to periodically demonstrate the legal status of all workers.
Guest workers would be eligible to apply for citizenship after a relatively lengthy period of time.

America needs immigrant labor to do the hard low skilled physical work such as in agriculture, meatpacking, and construction, which most Americans don’t want to do. An adequate guest worker system would virtually eliminate illegal immigration, thereby solving a huge current law enforcement problem. It would also give the U.S. economy a big boost by providing all businesses with an adequate source of labor.
We have got to get beyond our hang-up about amnesty to solve this incredibly serious problem!

Freedom and Equality

Posted on July 8, 2014 by jackheidel

The Wall Street Journal published its first issue on July 8, 1889 and today it is appropriately celebrating its 125^th anniversary. The lead editorial refers to its consistent editorial policy over the years as well as admitting several mistakes along the way. “These columns emphasize liberty, but on occasion those who prize equality can provide a necessary corrective. The best example is the civil rights movement … Yet those who promote freedom typically do better by equality than the progressives who elevate equality do by freedom.”
Today’s WSJ Op Ed page is devoted to “Ideas for Renewing American Prosperity” provided by many different luminaries (who were asked to propose one change in American policy, society or culture to revive prosperity and self-confidence), such as:

George Shultz, Return to Constitutional Government, meaning that “the president governs through people who are confirmed by the Senate and can be called upon to testify by the House or the Senate at any time. They are accountable people,” as opposed to unaccountable White House aids.
Heather MacDonald, Encourage Two-Parent Families. “Children raised by single mothers fail in school and commit crime at much higher rates than children raised by both parents. Single-parent households are far more likely to be poor and dependent on government assistance. But far more consequential is the cultural pathology of regarding fathers as an optional appendage for child rearing.”
George Gilder, Listen to Peter Drucker on Regulations. “At least half the bureaus and agencies in government regulate what no longer needs regulation.” We need “a new principle of effective administration under which every act, every agency, and every program of government is conceived as temporary and as expiring automatically after a fixed number of years.”
Sheila Bair, Find a Better Way to Tax the Rich. “By eliminating corporate income taxes, we would ease pressure on U.S. wages, bring back jobs and repatriate an estimated $2 trillion in profits stashed elsewhere. … It would be smarter to tax corporate profits once, at the shareholder level, and apply the same, higher rates to capital gains and dividends that apply to us working stiffs.”

These sentiments are really just non-ideological common sense. They might seem to be overly idealistic but are, nevertheless, quite doable if enough of our national leaders would just make them a priority. This is why we so badly need independent-minded non-partisans in national office!

A Recovery Stymied by Government?

Posted on July 1, 2014 by jackheidel

Why has the recovery from the Great Recession of 2007 – 2009 been so slow? Many mainstream economists blame structural problems in the economy such as more global competition for business and technological progress which replaces people by machines. Other economists blame greatly increased government regulation since 2009 such as the Affordable Care Act in healthcare, The Dodd-Frank Act for finance and many new regulations from the Environmental Protection Agency.
The economist Casey Mulligan, writing in yesterday’s Wall Street Journal, “A Recovery Stymied by Redistribution”, makes a case that government programs designed to alleviate the effects of the recession have made it deeper and more prolonged. Such actions include:

Long-term unemployment insurance
Looser restrictions on food stamps which do not require recipients to seek work
Mortgage assistance programs which set mortgage payments at “affordable” levels
New rules for consumer bankruptcy with special emphasis on current earnings

Mr. Mulligan’s point is that all of these new programs, like taxes, reduce incentives to work and earn.
But, by definition, structural effects are endemic and can’t be overturned. Also, some government reaction to the financial crisis, in order to prevent recurrence, was inevitable. And it is natural for the government to be responsive to the human misery caused by the recession. All of these points of view help us understand what has happened but don’t provide much guidance for boosting economic growth going forward.
The Great Recession was fundamentally caused by the bursting of the housing bubble which destroyed trillions of dollars of wealth for tens of millions of Americans. The recovery won’t speed up until many more millions of consumers feel comfortable in spending more money. We need to put more money in their pockets.
A very good way to accomplish this, as I have been saying over and over again, is through fundamental tax reform. The idea would be to lower individual income tax rates for everyone, and pay for this by closing the loopholes and deductions which primarily benefit the wealthy. This will put big bucks in the hands of the two-thirds of Americans who do not itemize their deductions. Since these are the middle and lower income wage earners whose wages have been stagnant for many years, they will spend this new income in their pockets thereby giving the economy a big boost.
Let’s do it!

How Not to Help Black Americans

Posted on June 17, 2014 by jackheidel

“It is important and right that all privileges of the law be ours, but it is vastly more important that we be prepared for the exercise of these privileges.” Booker T. Washington, 1856 – 1915

How do we lift up the black underclass, the school dropouts, gang members, and drug dealers who become criminals and spend their lives as a drag on society? The Wall Street Journal’s (black) editorial writer, Jason Riley, addresses this question in today’s paper, “How Not to Help Black Americans”. As he says “Upward mobility depends on work and family. Government policies which undermine the work ethic – open-ended welfare benefits, for example – help keep poor people poor. Why study hard in school if you will be held to a lower academic standard? Why change antisocial behavior when people are willing to reward it or make excuses for it?”
A few days ago, Robert Balfanz, the Director of the Everyone Graduates Center at John Hopkins University in Baltimore, wrote in the New York Times, “Stop Holding Us Back”, that even though 80% of Americans now graduate from high school, 33% of the nation’s African-American and Latino young men will not graduate. Half of these non-graduates go to a total of just 660 high schools out of a total of 12,600 high schools in the country. He suggests the following:

Refocus such high-poverty high schools in order to identify by the middle of ninth grade the students most likely to drop out.
Set up early warning systems so that adults can step in at the first sign that a student is in trouble.
Employ additional adults to support students who need daily nagging to succeed, especially during the key transitional years in sixth and ninth grade.

Such a plan has been instituted in the Chicago Public Schools as described in “Preventable Failure”. As the above chart shows, it has led to dramatic improvement in the on-track rate of at-risk ninth graders in CPS.
These two school programs, in Baltimore and Chicago, represent what we should be doing to help all minorities, especially blacks, succeed in life. Resources provided for such programs will do much more to eliminate poverty than expanding conventional welfare.

Escaping the Student Debt Trap

Posted on June 15, 2014 by jackheidel

Student debt in the U.S. now tops $1.2 trillion with 37 million borrows, 5.4 million of whom have already defaulted. President Obama has proposed to expand a program which allows students to repay debt based on what they earn, eventually forgiving the balance. Massachusetts Senator Warren has proposed taxing millionaires to pay for student loan refinancing. Small scale free market proposals abound. What is badly needed is a sensible broad-based public program approved by Congress.
The Brookings Institution has recently proposed just such a model for student loan repayment “Loans for Educational Opportunity: Making Borrowing Work for Today’s Students”. It is based on four observations:

Moderate debt for the typical student borrower. 69% of students have borrowed $10,000 or less.
The high payoff of a college education. Over a lifetime the holder of a bachelor’s degree earns several hundred thousand dollars more than a high school graduate. Even those who attend college but do not graduate will experience an income gain of about $100,000. Postsecondary education should be encouraged as widely as possible.
The highest rates of default are on typical loan balances. The average loan balance in default is $14,000 while the average loan balance in good standing is $22,000.
The highest rates of default are among young borrowers. For borrowers under age 21, 28% have defaulted, for borrowers between ages 30 and 44, 18% have defaulted and it is 12% for borrowers aged 45 and older.

The Brookings’ authors propose that student loan payments be deducted from pay by the employer, in the same way as for income taxes and Social Security. The payment rate would be only 3% of the first $10,000 in annual earnings and would rise with higher earnings topping out at 10%. Loan payments will stop when the loan is repaid or after 25 years, whichever comes first. Various measures can be adopted to protect against deadbeats. See the Brookings report for details.
The fairest system would be for all students, past and present, to be put into a program like this. Nobody would be expected to pay during periods of unemployment. Interest rates could be adjusted from year to year to make the program self-supporting. Something along these lines is badly needed!

Raising America’s Pay II. How Can We Do It?

Posted on June 10, 2014 by jackheidel

My last post “Raising America’s Pay” addresses a new report from the Economic Policy Institute, “Raising America’s Pay: Why It’s Our Central Economic Policy Challenge”. Its starting point is the now generally accepted view that wages for the typical American worker have been flat ever since the early 1970s even though labor productivity has continued to rise steadily.
The EPI authors recognize that globalization and the growth of technology have contributed to wage stagnation even though they blame malign policy decisions as well. I do agree with them that the resulting increase in economic inequality is detrimental to America. I also agree with them that the way to address inequality is for wages to go up. The best way to accomplish this is to lower unemployment by increasing economic growth. This will happen when large numbers of consumers start spending more money, thereby increasing demand. Does this sound like a vicious circle? It need not be!
The above chart from the Wall Street Journal shows that the net worth of U.S. households has now more than recovered from the Great Recession. The problem is that most of this new wealth has gone to the people with the highest incomes who are more likely to save it. What we need to do is “redistribute” (gasp!) some of this vast sum of new wealth back to middle and lower income people who would be much more likely to spend it.
There is a straightforward way to do this. Broad based tax reform! Lower everyone’s tax rates paid for by closing loopholes and shrinking deductions which primarily benefit the wealthy. This will be a pure gain in income for the two thirds of Americans, about 80 million, who pay income taxes but do not itemize deductions, most of whom are in the lower and middle income brackets. These people are likely to spend most of their new income, thus giving the economy the big boost that it needs!
Our leaders in Washington should be able to figure this out!

A Strong Country Requires a Strong Economy

Posted on June 3, 2014 by jackheidel

“Ukraine is a wake-up call for what a post-American world would look like” declares the foreign affairs expert Walter Russell Mead in an article “Putin Did Americans a Favor” (http://online.wsj.com/articles/walter-russell-mead-putin-did-americans-a-favor-1401662270) in yesterday’s Wall Street Journal.
“For those willing to see, the signs of what a post-American world would look like are easy to discern. We can look at Bashar Assad’s murderous campaign in Syria to see how Iran thinks power should be used. To see what Saudi Arabia thinks about human rights and liberal values, follow events in Egypt and Pakistan. China would become more aggressive in a post American world, and the chances of Sino-Japanese conflict would increase. … In Europe, only power keeps or can keep Russia from rebuilding its old empire.”
“Those who think American decline is inevitable must face a tragic truth: The eclipse of American power will be a disaster for our economic interests, for the values we cherish and, in the end, for our security at home. What stability, peace and legality now exist in the international system are there because the U.S., with important help from allies and partners, made great sacrifices to build and secure them.”
America’s decline is not inevitable but neither is our continued success. As much as anything else, it depends on the strength of our economic system. We need to give much more attention to making our economy grow faster. This will create more jobs and better jobs and thereby boost national morale. It will bring in more tax revenue for paying our bills. In addition, projecting national power is very expensive. We can and should continue to insist that our defense budget be lean and efficient. But there is a limit as to how far we can go in this direction. Ultimately defense spending will have to increase as a percentage of GNP. This can only be accomplished with a robust economy.
As I have repeated many times in my blog posts, the best strategy for making the economy grow faster is to encourage more consumer spending by lowering individual tax rates and to encourage more entrepreneurial activity by reducing tax rates on small business. Such tax changes can easily be paid for by closing loopholes and shrinking tax deductions for the wealthy. But there has to be a political will to do this.
Can this be accomplished? I don’t know but our future as a free and prosperous nation depends on it!

Privatize Veteran’s Health Care

Posted on May 26, 2014 by jackheidel

The current Veterans Administration waitlist scandal is an unfortunate symptom of a much bigger problem, namely the very high and rapidly increasing cost of providing healthcare to our nation’s veterans. Especially at a time of huge budget deficits and exploding national debt, all branches of government, including our VA system, must operate more efficiently.
As we celebrate Memorial Day and the 70^th anniversary of the Normandy Invasion in WWII, this is a good time to contemplate a major restructuring of the VA. As pointed out two days ago in the Wall Street Journal, “VA’s Budget, and Rolls, Have Boomed”, not only has the number of VA healthcare patient visits increased dramatically from 3.4 million in 2000 to 5.6 million in 2012, but the average annual expenditure per patient has also risen by 62% over the same time period.
The purpose of having a separate healthcare system for veterans is to give them better care than they would otherwise receive. But the scarcity of resources means that their healthcare is being effectively rationed with longer waiting times.
The situation for veteran’s healthcare is a harbinger of what awaits us for our big government entitlement problems: Social Security, Medicare and Medicaid. For the sake of all recipients, present and future, the rapidly growing costs of these programs must be contained. There are lots of possible ways to do this. Our national leaders simply need to take the problem seriously and insist on action.
At the same time it makes no sense to maintain a separate health care system for our nation’s 22 million veterans, only 7% of our total population. The VA has lots of other responsibilities to take care of anyway: providing life-insurance, mortgage, and housing programs, managing cemeteries, and providing job training, for example. Veteran’s healthcare could and should be privatized with a voucher system administered by the VA. It will save billions of dollars for taxpayers and provide better, and timelier, healthcare for our nation’s veterans.

An Inequality Culprit: Single-Parent Families

Posted on May 6, 2014 by jackheidel

It is generally agreed that income inequality in the U.S. is bad and getting worse. Before we can address it effectively, we have to understand what is causing it. In this regard the Wall Street Journal had an article recently, “Ignoring an Inequality Culprit: Single-Parent Families”, by two scholars, Robert Maranto and Michael Crouch, from the Department of Education Reform at the University of Arkansas.
Mr. Maranto and Mr. Crouch call attention to what they call “the strongest statistical correlate of inequality in the United States: the rise of single parent families during the past half century. … In 1960, more than 76% of African-Americans and nearly 97% of whites were born to married couples. Today the percentage is 30% for blacks and 70% for whites. … This trend, coupled with high divorce rates, means that roughly 25% of American children now live in single-parent homes, twice the percentage in Europe (12%). Roughly a third of American children live apart from their fathers.” In addition, “more than 20% of children in single-parent families live in poverty long-term, compared with 2% of those raised in two parent families.” It is estimated “that 41% of the economic inequality created between 1976-2000 was the result of changed family structure.”
The authors wonder why there is not more public attention given to this depressing state of affairs and conclude that

Intellectual and cultural elites lean to the left and it is primarily social conservatives who promote traditional family structure.
Family breakup has hit minority communities the hardest. Therefore public discussion can be characterized as being racist.
This is a very hard problem to solve. Marriage and childrearing involve highly personal choices which cannot be dictated by society.

In this regard, my March 11, 2014 post “A balanced and Sensible Antipoverty Program”, emphasizes the need to at least remove marriage penalties from government welfare policy.
As the authors conclude, “The first step is to acknowledge the problem.”

It Does Not Add Up

Jack Heidel's blog on fiscal responsibility

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